As of September 2019 the average house price in the UK was £234370
(source: HM Land Registry ) and median weekly earnings for full-time
employees reached £30420 April 2019 (source: ONS).
That represents a mortgage to earnings multiple of 7.7! If we use a multiple of 4, which, in my opinion, represents a fair representation after
affordability checks made by lenders, you get to a property value of £121620. It is little wonder that research by Santander Bank found the two biggest hurdles faced by prospective
home buyers is raising the required deposit and getting an
agreement in principle for the property they want to buy based on their income.
Stamp duty relief for first time buyers
Buying a home in England and Northern Ireland will trigger a stamp duty charge on properties costing over £125000. However,
first time buyers in England and Northern Ireland get an
extended relief to £300000. Based on current rates (as of 5th December 2019) this represents a saving of £5000 when buying a property for £300000.
If the first time buyers were to buy a property at £400000 they would only pay the stamp duty on the £100000 over and above the £300000 relief representing a
charge of £5000 as opposed to £10000. This relief does offer some help to first time buyers with saving for the deposit.
Learn more here.
Help to buy - Equity Loan scheme
We are going to take a look at the Equity Loan scheme available in England.
Scotland and Wales have their own schemes, details of which can be found here -
In short, this scheme will loan you a maximum of 20% (40% for London) of the property purchase price (maximum allowable is £120000 and
£240000 for London). You have to raise a deposit of 5% (minimum) of the
purchase price and secure a mortgage for the remaining 75%. Take a look at the following, based on a property purchase price of £200000 -
The property to be purchased must be a new build and from a developer that has been authorised to offer the scheme. The equity loan provided
by the scheme will be interest free for the first 5 years. There will be a small management fee of £1 each month. Following the initial 5 years the management
fee will increase to 1.75% of the outstanding equity loan and will increase by RPI (retail price index) plus 1% each subsequent year.
This will help deposit poor buyers get onto the property ladder. However, you should take serious steps to repay the loan as soon as possible as
when the interest starts being charged from year five this charge could start to get quite high. Another caveat to be aware of is the fact that the absolute loan amout will not
remain constant. The Help to Buy scheme actually owns the initial
percentage of the loan taken. So if you borrowed 20% of the property purchase price the scheme owns 20% of your property.
So, if we consider the example in the above graphic illustration, you borrowed £40000 representing 20% of the property value of £200000.
Let's assume in year five you still have a loan of £40000 and decide to sell as the value of the property has increased to £300000. On sale you will have to pay back to the Equity Loan
scheme 20% of £300000, ie £60000, not £40000. That is why it is important you make efforts to repay the loan early.
The scheme will be restricted to first time buyers from 2021 until 2023 when it will be removed all together.
Learn more here.
Help to buy - Shared ownership
Shared ownership in England enables you to buy a proportion of your home and rent the remaining from the shared ownership scheme provider. This
is aimed at helping purchasers on lower incomes purchase their home. To qualify the household must have an income of no more than £80000 per annum (£90000 in London),
be a first time buyer or someone who has owned a property previously but unable to purchase now due to financial constraints.
You will be able to purchase a share of between 25% and 75% of the property purchase price. This can be achieved through savings and/or a
mortgage with a minimum of a 5% deposit of the share you are purchasing. The remaining share will be rented to you by the shared ownership scheme provider.
Once you are a owner you will have the option to purchase more of a share in the property through what is called staircasing. Subsequent
share costs will depend on the market value of your property at time of purchase. So, if your property has increased in value subsequent share purchases will be
of a higher price than the initial share purchase. The opposite is true if the market price in your property has fallen.
Learn more here.
There are schemes and tax reliefs available that address the problems faced by families purchasing a home. However, you do need to
understand the future implications of part-taking in the schemes available.
Talk to us and let's see whether you firstly qualify for such schemes and if they are suitable for your circumstances.
Lawrie Mortgages will guide you through the mortgage selection process when considering help to buy schemes.
Simple, get in touch. Before you do you may want to enquire about your credit file as your mortgage adviser will more than likely ask you for it as it
will form part of his research in finding your best mortgage choice. As with all mortgages there is no guarantee you will be accepted for mortgage following application but going through Lawrie Mortgages and letting us help you make the best mortgage choice will greatly increase your chances. Any successful mortgage application will rely on your own personal
circumstances which will include your income and affordability as assessed by the respective lender underwriting.
0121 616 0216